Murdoch Abandons Kirch as Pay-TV Unit Drags BSkyB into Red

News, 08 February 2002

Rupert Murdoch increased the pressure on Kirch Gruppe Thursday by announcing plans to cut ties with the German media giant.

The media mogul met with fellow executives at British satellite broadcaster BSkyB to discuss the future of its 22% stake in Kirch’s pay-TV arm [WAMN: 07-Feb-02]. One proposal had been to take over the cash-burning platform in a bid to make it profitable; such a move, however, was roundly rejected.

“I do not see how we can continue with the relationship without putting more money into it and that is something we are not prepared to do,” declared Murdoch.

Indeed, the stake was responsible for taking the shine off BSkyB’s financial results for the second half of 2001, released Friday morning.

The satellite firm posted a net loss of £1.2 billion in the six-month period, dragged down by a £985 million write-down on the Kirch holding. Profits before tax and one-time items stood at £62m, down from £112m a year earlier, while subscriber numbers surged 218,000 in the fourth quarter to 5.7m.

NewsCorp executives suggest Murdoch wants to go further than offloading the pay-TV stake by selling the media mammoth’s minority holding in broadcasting division Kirch Media. Commented one insider: “Our negotiation is to get E1.6bn out [via the BSkyB option] now and, in a couple of years, get E500–600m out for NewsCorp.”

Murdoch’s comments imply that BSkyB will exercise an option forcing Kirch to buy back Sky's stake in October for E1.6bn – a payment it lacks funds to make, according to Dieter Hahn, the German group’s vice chairman and until this week a board member of BSkyB. The latter is expected to announce today (Friday) that it will force the buyback.

The decision may be a negotiating tactic by Murdoch to prise a favourable settlement from Kirch, which could also decide to hunt new investment to pay off the debt. Otherwise it will face bankruptcy – at which point, it is rumoured, Murdoch may attempt to take over the whole group [WAMN: 07-Dec-01].

There could, however, be a glimmer of hope for the floundering Kirch: its biggest lender Bayerische Landesbank has called on the group’s six largest creditor banks to pool resources in order to keep it under German control.

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